Oil slips below $79 on Europe's economic woes

View full sizeAP PhotoIn this June 15, file photo, an Arco gas station worker lowers the prices on a sign at a Arco gas station in Palo Alto, Calif.

The price of oil fell below $79 a barrel Monday due to concerns over Europe's economic and financial woes. The drop was limited somewhat by a supply disruption from a storm that shut down about a quarter of crude output in the Gulf of Mexico.

By early afternoon in Europe, benchmark oil for August delivery was down 85 cents at $78.91 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1.56 to settle at $79.76 in New York on Friday.

In London, Brent crude for August delivery was down 97 cents at $90.01 per barrel on the ICE Futures exchange.

Investors will be closely watching a European Union summit this week where the leaders the leaders of France, Germany, Italy and Spain have agreed to push for a growth package worth up to $163 billion to spur the region's weak economy.

Crude has plunged from $106 less than two months ago amid signs of slowing economic growth and oil demand in the U.S., Europe and China. Capital Economics said it expects Brent crude to fall to as low as $70 during the next 18 months.

"The main downside risk to oil prices comes from the crisis in the eurozone, which we do expect to worsen," Capital Economics said in a report. "However, after such precipitate declines in oil prices, it would not be surprising to see a small, albeit temporary, bounce."

Tropical Storm Debby, with top sustained winds of about 60 mph (95 kph), is lashing Florida and Alabama with heavy rains and is expected to come ashore later this week over the Florida Panhandle. As of Sunday morning, 23 percent of oil and gas production in the Gulf region had been suspended, according to a government hurricane response team. Employees have been evacuated from 13 drilling rigs and 61 production platforms in the Gulf.

Analysts said any supply disruption should be brief since the storm was not expected to significantly damage oil facilities. "These supply outages are merely temporary in nature and the supply surplus is still considerable," said a report from Commerzbank in Frankfurt.

Some experts predicted oil prices would recover somewhat in the longer-term.

"Global oil consumption is still expected to grow this year - albeit by a relatively weak 1 percent - not contract as it did in 2008 and 2009," said Caroline Bain, commodities analyst at the Economist Intelligence Unit. "Consumption will be supported in the second half of the year by the end of refinery maintenance, a possible return of more `normal' (colder) winter weather in the northern hemisphere and by lower retail prices, particularly in the U.S. market."

In other energy trading, heating oil was down 2.16 cents at $2.5104 per gallon while gasoline futures gained 0.17 cent at $2.4693 per gallon. Natural gas jumped 7.4 cents at $2.699 per 1,000 cubic feet.